Impact of New Audit Standards

Impact of New Audit Standards

By Ryan Blaney, CPA, Manager

The trickle-down effect of the Enron scandal and related Sarbanes-Oxley legislation has inevitably made its way to the world of privately-held companies, non-profits, and government audits. As a result, the American Institute of Certified Public Accountants has issued eight new auditing standards effective for fiscal years beginning after December 15, 2006. These standards are the most comprehensive set of new audit standards released in the last 20 years. Although less in scope than the rules impacting public company audits, these new standards parallel many of the key themes of the Sarbanes-Oxley Act.

MNC staff have invested a significant amount of time in understanding the standards and their impact on our procedures and, more importantly, what it will mean to our clients. Our objective in redesigning our audits to comply with these new standards is to provide you with the highest quality audit, while adding value through operational and financial suggestions and implementing the standards efficiently through a planned approach.
According to the new standards, auditors are required to, amongst other things:

Obtain a greater understanding of their clients’ operations, business objectives and strategies, and processes for identifying and managing risks to achieve those objectives;
Gain a more thorough understanding of their clients’ internal controls;
Perform more rigorous assessment of the risks of where and how the financial statements could be materially misstated, with a clearly-documented link between the risk assessment process and the specific audit procedures performed;
Increase communications with management and governing bodies before, during, and after the audit; and involve more experienced audit personnel at all stages in the audit process.

The main objective of these standards is to strengthen and enhance the quality of the audit, an objective that MNC fully supports.

So how might this affect you?
The impact of these standards is expected to be felt primarily through increased time from both company personnel and the auditors. We will work with you to keep any resulting increase in fees to a minimum. Specifically, the new standards may require the auditors to 1) Request information and documentation at a level of detail that they did not ask for in the past; 2) Perform additional audit procedures related to internal controls; and 3) Formally report to their clients internal control deficiencies and other matters they may not have formally reported in the past.

We believe these standards will benefit all stakeholders in the financial reporting process, especially those who rely on audited financial statements in making decisions about an organization. If you have any questions about the new standards and the impact on your business, please call me at 812-288-6621 or email Ryan_Blaney@mnccpa.com.